7.1
This chapter outlines a number of issues presented in evidence to the committee in the areas of culture and skills.
Culture
7.2
Promoting a culture of innovation and startup success is critical to the ongoing development of the FinTech and RegTech sectors in Australia, and Australia’s economic success more broadly in the post-COVID period. While this cannot be created solely by government, regulators and government agencies can promote innovation and facilitate initiatives in this space.
7.3
This section examines several matters that feed into Australia’s FinTech and startup culture across a range of areas, including:
the role of Commonwealth procurement in fostering the Australian FinTech and RegTech sectors;
the need for challenge-based innovation; and
the creation of an AgTech Advisory Council to promote innovation in the agricultural sector.
Leveraging Commonwealth procurement
7.4
The committee received evidence which highlighted the important role that government could play in promoting the Australian FinTech and RegTech sectors through procurement.
7.5
For example, FinTech Australia argued that more needed to be done to open up government procurement processes to Fintechs, as some of the current guidelines automatically eliminated new FinTech businesses from tendering. It explained:
Government procurement processes should be amended to allow fintechs to tender and be appointed as service providers. Government is a significant consumer of services. However, in many cases businesses are required to have more than 3 years of financial data before they can tender for government contracts. This should be revised.
7.6
The RegTech Association also noted that procurement programs often do not cater for early stage RegTech companies:
Startups or scaleups find themselves needing to engage expensive professional services and other advisors to satisfy the requirements of the programs. Many require International Standards (ISO) compliance to be met that is cost prohibitive and resource-intensive. A one-approach fits-all for procurement does not work.
7.7
Stone & Chalk Chief Executive Officer, Mr Alex Scandurra, pointed out that federal and state governments were significant buyers in the economy, meaning they could take practical steps to promote Australian FinTech and RegTech sectors through procurement:
We have, for various years, tried to help both levels of government become what we call 'startup ready', which is in creating a fast-track procurement process for early stage technology companies in Australia. To a large extent, we've failed in implementing that successfully across the country. When we look at startup and scale-up success, the biggest factor is in reducing the perceived risk profile of that investment and there is no better way of reducing that risk than through validation that comes through customer contracts, and, right now, as governments, we are talking about it, but we aren't doing it and leading the way. So we desperately need a fast-track procurement process that is fit for purpose for working with early stage startups and scale-ups across the country at both a state and federal level. What we don't mean is where there is high risk or where it's core to government systems, for example, where potentially it could be seen as a highly risky decision to employ an immature technology, let's say, versus an alternative. But, when we look at the extent and breadth of government expenditure at both state and federal levels, there is more than enough to provide a real accelerant to startup and scale-up growth in this country.
7.8
FinTech Australia noted that many FinTechs in the Australian market would benefit from having the government as a customer. It suggested that this would allow for the government to integrate system efficiencies and have the added bonus of ensuring that the FinTechs would be able to provide future jobs, with the job growth potential increasing over time.
7.9
Ms Kate Carnell AO, the Australian Small Business and Family Enterprise Ombudsman, told the committee that government procurement for RegTech solutions is particularly important during the economic downturn created by the COVID-19 pandemic:
One of the things governments could do really well to help things along in the sector is actually go out to tender, using their purchasing power to get some regtech solutions happening. There is a whole range of areas in government where that could be a great benefit certainly to small business and more broadly. This is, in our view, a time when government purchasing power really needs to be used to stimulate the economy.
7.10
Innovation and Science Australia (ISA) is an independent statutory board of entrepreneurs, investors, research and educators which advises the government on innovation, research and science matters. In its February 2020 Stimulating business investment in innovation report to government, the ISA noted that many countries have used government procurement (including challenge-based approaches) to support the development of an innovation ecosystem and drive productivity growth.
7.11
ISA noted that although governments in Australia were using challenge-based procurement (such as the Business Research and Innovation Initiative, and the Small Business Innovation Research for Defence), these programs were not on a scale to create sufficient demand for innovation from firms.
7.12
ISA outlined how government procurement policies could create opportunities and generate more customers for Australian firms:
Government is a major purchaser and its procurement processes are a training ground for customer engagement. The use of government procurement to increase business investment in innovation could impact how businesses think about the value of innovation and drive considered risk taking.
7.13
ISA recommended that where appropriate, government should leverage its procurement of products and services to promote a more innovation-oriented response from business and build business capability.
7.14
The Digital Transformation Agency informed the committee about the Digital Marketplace initiative, which assists small and medium enterprises in making government aware of their services:
Certainly a key way that we have introduced as an easier way to introduce yourself to government is…the Digital Marketplace. That allows a particular emphasis on small-to-medium enterprises to offer their services to government. It also includes some features like 'ask the market'. In other words, government agencies can put a request out to the marketplace, looking for an outcome versus a prescribed set of requirements, particularly in emerging technology spaces where it's not clear what you need.
Challenge-based innovation
7.15
The committee received evidence on how government could utilise the challenge-based innovation to help grow Australian businesses, as well as solve difficult public policy and service delivery challenges.
Business Research Innovation Initiative
7.16
The Business Research Innovation Initiative (BRII) is administered by the Department of Industry, Science, Energy and Resources and aims to help the government tap into leading edge thinking and encourage innovation. The initiative offers competitive grants to encourage small and medium enterprises (SMEs) to develop solutions to public policy and service delivery challenges nominated by government.
7.17
In Stage 1 of the BRII, five challenges are selected and published. The challenges are proposed by government agencies, recommended by Innovation and Science Australia and then approved by the Minister.
7.18
For example, the challenges proposed for the 2019 funding round were:
Fast and secure digital identity verification for people experiencing domestic violence (proposed by the Department of Human Services)
Intelligent data to transform tourism service delivery (proposed by Austrade)
Uplifting government capability to help deliver world-leading digital services (proposed by Digital Transformation Agency)
Managing the risks of hitchhiking pests and contaminants on shipping containers (proposed by Department of Agriculture and Water Resources)
Automating complex determinations for Australian Government information (National Archives of Australia).
7.19
During Stage 2 of the process, eligible entities apply for competitive grants to undertake a feasibility study on their proposed solution to a challenge. Feasibility study projects must demonstrate the scientific, technical and commercial feasibility of the proposed solution. The maximum grant for each feasibility study is $100,000, with a maximum period of three months. Each round has $2 million available for all feasibility studies.
7.20
During Stage 3, SMEs that have shown that their idea is feasible through a feasibility study can apply for funding to develop a proof of concept. Proof of concept projects involve undertaking activities to produce a working prototype or demonstration of the proposed solution. The maximum grant amount is $1 million, with a maximum period of 18 months. For each round there is $10 million available for all proofs of concept.
7.21
At the conclusion of this stage, the government agency that proposed the challenge has the option to negotiate the purchase of the solution, although there is no obligation to do so. Any purchase of the solution is subject to negotiation between the agency and the solution provider.
7.22
Factil Pty Ltd (Factil) is a specialist software company based in Melbourne that provides organisations with solutions to complex data integration challenges. Between March 2017 and October 2018 it was successful in two stages of grant funding for the BRII Round 1 Challenge.
7.23
Factil developed a system called 'Kalinda' to meet the requirements of a BRII challenge aimed at sharing information nationally to ensure child safety. Kalinda provides an advanced general query and record matching search process across Person, Location, and Relationship data maintained by state-based child protection agencies. The system utilises leading machine learning techniques and is a scalable solution in a secure certified government cloud system. As a result of the BRII funding Factil was able to employ three specialist staff, and the Kalinda system directly led to two follow-up projects with the Victorian and Commonwealth governments.
Events-based innovation challenges
7.24
Submitters highlighted the role of hackathons and event-based challenges in enabling innovative companies to solve policy problems and develop new ideas.
7.25
CPA Australia argued that to maximise FinTech clustering and networking effects and attract international FinTech start-ups and investors into the country, Australia ‘stands to benefit from more government involvement in facilitating annual FinTech events’. It recommended that the Australian Government organise or sponsor large-scale FinTech events annually, which ‘could include expanding on the format of the RegTech Liaison Forums or GovHack, to include FinTech-specific hackathons’.
Targeted innovation grants
7.26
FinTech Australia submitted that a targeted innovation grants program could help both sustain the FinTech sector through the COVID-19 crisis period and advance specific initiatives the government has prioritised:
Members have suggested the Government create a targeted grant scheme to fund continued innovation in an environment of increased withdrawal of venture capital. This scheme could be aimed at promoting innovation in key initiatives such as the implementation of the Consumer Data Right or progressing payments through the New Payments Platform. This would have the added benefit of not only financially supporting innovative fintechs and startups, but also supporting development and adoption of the Consumer Data Right by industry, and its customers.
AgTech Advisory Council
7.27
The committee received evidence on the opportunities and potential for the agricultural technology (AgTech) sector in Australia.
7.28
The National Farmers' Federation (NFF) noted that while the Australian AgTech sector was still relatively immature on a global scale, there had been significant growth in activity in recent years. It advised that there are now at least eleven operational incubators, accelerator and pre-accelerator programs dedicated to food and agriculture across the country, a growing number of public and private funding opportunities, as well as hundreds of AgTech start-ups.
7.29
AgriDigital, a company focused on bringing emerging technologies and innovation to the agricultural supply chain, stated that it was investigating significant international opportunities. Co-founder Mr Bob McKay explained:
We've started our expansion into the US. We see that as critical for the success of our business. Australia is a fantastic place to trial and commercialise software. It's a tough market. We're not helped by two years of drought, which impacts on that as well. If you can commercialise software in Australia and then take it to the world, we're finding that North Americans and Canadians in particular are really receptive to Australian companies, particularly in the agtech space.
7.30
Mr McKay also spoke positively regarding the potential for the Australian AgTech sector more broadly:
We think there's a really good opportunity to brand Aussie AgTech as the leading world brand for agricultural technology. When you think of Israel, you think of security and those sorts of things. I think for Australia there is a good opportunity for us to be seen as the agtech leaders. In reality, the Australian market, while big—and it is substantial for agriculture—is really not big enough to justify the investment that companies like us put into our technology, so we do have to go and treat the world as our market.
7.31
The NFF emphasised the importance of bringing the general agricultural sector on board in the AgTech space to ensure solid user take-up and build trust. Dr Adrienne Ryan, General Manager of Rural Affairs for the NFF highlighted this point to the committee at a public hearing:
…technology in the ag sector and quite possibly in other sectors is often pushed on to industry by entrepreneurs who may not have a good understanding of the complexities of the system that they are seeking to service, rather than being pulled into the industry by producers who are seeking to address on-farm problems. So the end result can be solutions looking for problems. This in turn undermines trust and can affect how farmers respond to products that are genuinely useful and well-targeted. So we need a really considered approach. Farmers aren't always comfortable with the rapid turnover of new technologies. They are not always convinced by short-term benefits. They may prefer to wait for it to be proven and tested before investing significant time and money.
7.32
In order effectively tap into the AgTech sector's potential, the NFF recommended that the government adopt a leadership role in digital agriculture by establishing a high level advisory group to oversee development of a digital strategy for agriculture, including a data strategy and a data sharing policy.
7.33
Dr Ryan explained the reasoning behind this recommendation:
That was a recommendation that came out of the probably three to four years of work that the rural research and development corporations [RDCs] have been leading. It was the first time that all 15 of the RDCs had worked together on a single initiative, which I think is a clear demonstration of how seriously they are all taking digital agriculture. A lot of work was done, but I think the feeling was that there was now a need for some national leadership if we are actually going to generate real change and get the necessary traction to achieve.
7.34
The Department of Agriculture, Water and the Environment (DAWE) provided a list of activities underway to support the opportunities offered by AgTech including:
The 2019 Ernst & Young report Agricultural Innovation – A national Approach to Grow Australia's Future commissioned by DAWE;
Horizon Scan: The future of agricultural technologies, undertaken by the Australian Council of Learned Academies, commissioned by the Australian Government National Science and Technology Council and Australia's Chief Scientist and funded by DAWE;
$157 million Rural Research and Development for Profit Program with many projects targeting digital agriculture and AgTech; and
Traceability Grants Program which is investing $7 million into projects to enhance supply chain traceability systems.
7.35
DAWE also noted the Agricultural Research and Development Corporations which 'invest in a wide range of research activities that include developing AgTech solutions such as robotics, automated irrigation, precision agriculture and virtual fencing'.
7.36
CSIRO informed the committee that it has a large portfolio of research in digital agriculture including:
Graincast which uses weather and soil information to forecast soil moisture and yield for grain crops; and
Waterwise which advises farmers when to irrigate using a plant stress prediction model from infrared sensors and weather forecasts.
7.37
The University of New England’s SMART Region Incubator, which supports over 60 startups from regional NSW, noted the potential to activate technology based start-ups in rural communities and generate new economy jobs. It identified a number of key actions to transform the digital technologies in agriculture in Australia, including:
recognising data ownership and governance as a policy priority, with research required to pilot different approaches to the management of farmer’s data along the supply chain, including the payment of farmers for use of their data;
undertaking research activities to identify barriers and opportunities toward the rapid development of a competitive digital services industry in agriculture, given the costs and risks associated with adoption of digital technology and digital transformation along the food supply chain;
developing school level, VET and university programs for careers in AgTech, noting that AgTech can help address agriculture’s inability to attract and retain young talent;
creating RegTech partnerships between the food industry and government regulators, by trialling projects which connect real time data streams between agricultural assets and regulatory bodies to assist in compliance and to enhance understanding of the nature of agriculture’s externalities;
establishing a pilot project looking at the value proposition for hands-free product delivery on both export and domestic markets made possible by enhanced data transfer at processor-retailer interfaces; and
piloting novel approaches to incorporate real time and digital measurement into financial sector applications relating to AgTech, such as the use of Australian carbon credit units.
Skills
7.38
The committee received a broad range of evidence relating to skills, training and access to talent in the FinTech and RegTech sectors in Australia. For this interim report, the committee has focused specifically on some of the matters raised, including:
recent developments in Australia’s vocational education and training system, including the establishment of the National Skills Commission;
response measures to the COVID-19 crisis that have supported employment and skills, including for FinTechs and RegTechs;
the need to facilitate lifelong learning in order to allow Australians to retrain and reskill, including through ‘microcredentials’; and
the need for clarity around the operation of Fringe Benefits Tax.
Recent developments and establishment of the National Skills Commission
7.39
The Australian Government announced a suite of initiatives for the vocational education and training (VET) sector in the 2019-20 Budget, through the $585.3 million skills package Delivering Skills for Today and Tomorrow. The package was announced following a review of the VET sector conducted by the Hon Steven Joyce, Strengthening Skills: Expert Review of Australia’s Vocational Education and Training System (the Joyce review), completed in March 2019.
7.40
A key recommendation of the Joyce Review implemented in the Delivering Skills for Today and Tomorrow reform package was the establishment of a National Skills Commission (NSC). Other components of the package include:
establishing the National Careers Institute to provide a single authoritative government source of careers information, with a particular focus on marketing and promoting vocational careers;
supporting up to 80,000 additional apprenticeships over five years; and
piloting new Skills Organisations ‘to enhance the role and leadership of industry and to test and trial ways to improve Australia’s VET sector’.
National Skills Commission
7.41
The NSC’s role will be to work with state and territory governments, employers and other stakeholders to develop advice to the Australian Government and collect, analyse, share and publish data on:
Australia’s current, emerging and future workforce skills needs;
the performance of Australia’s system for providing VET;
issues affecting the state of the Australian and international labour markets;
efficient prices for VET courses;
the public and private return on government investment in VET qualifications; and
opportunities to improve access, skills development and choice for regional, rural and remote Australia in relation to VET.
7.42
Mr Adam Boynton was appointed interim National Skills Commissioner in October 2019 to oversee early design work and engage in a co-design process for the NSC. Legislation to establish the NSC as a statutory position was introduced into Parliament on 14 May 2020, and passed the Senate on Thursday 18 June 2020 and will be considered again by the House of Representatives before it receives Royal Assent.
7.43
The Prime Minister, the Hon Scott Morrison MP, outlined in May 2020 the importance of overhauling the VET system in Australia to assist economic recovery in the wake of the COVID-19 pandemic, highlighting the role of the NSC:
The National Skills Commission has been established…and will now provide detailed labour market analysis, including an annual report each year setting out the skill needs of Australia, replacing those existing lists for apprenticeships and skilled migration.
This will be supplemented by the publication of closer to real time data on the labour market drawing on emerging data sets, such as single-touch payroll, to flag emerging skills shortages and other labour market trends and pressures.
The Commissioner’s analysis is what will also help…students with their career and training choices via the National Careers Institute (NCI), by giving them the most accurate and comprehensive data on where skills gaps and jobs are. Information from the [NSC] will be publicly available and should inform government and private investment in the system, including VET subsidies and a new national skills funding agreement.
Suggestions arising from COVID-19 pandemic period
7.44
Submitters and witnesses commented on the JobKeeper program as being critical to assisting FinTechs and RegTechs survive the initial phase of the COVID-19 pandemic. The committee also received various suggestions on other initiatives that could be taken to support jobs and skills training in the sector through the crisis.
JobKeeper scheme
7.45
The JobKeeper scheme, designed to subsidise the wages payable to employees by businesses affected by the coronavirus, was announced on 30 March 2020. In its initial phase it provides a payment of $1500 per fortnight to each eligible employee of businesses and not-for-profits that qualify for the scheme, for a period of up to six months.
7.46
In broad terms, businesses can qualify for the scheme if they experience, or are likely to experience, a 30 per cent reduction in turnover due to the coronavirus economic downturn, relative to a comparison period from 2019.
7.47
On 23 April 2020 the Australian Taxation Office (ATO) released rules outlining several circumstances in which alternative eligibility tests may be made for businesses that do not meet the baseline criteria. Relevantly for new businesses and high-growth businesses (including many FinTechs), alternative tests are available in circumstances where:
newer entities have commenced business sometime in the 12 months prior to March 2020 (and hence do not have a relevant comparison period under the standard test); or
the entity’s turnover substantially increased by:
50 per cent or more in the 12 months immediately before the applicable turnover test period, or
25 per cent or more in the 6 months immediately before the applicable turnover test period, or
12.5 per cent or more in the 3 months immediately before the applicable turnover test period.
7.48
In these circumstances, businesses can use alternative tests based on average monthly or quarterly GST turnover.
7.49
Submitters and witnesses expressed strong overall support for the JobKeeper program, particularly after the changes made to enable high-growth companies access to the program. Mr Alex Scandurra, Chief Executive Officer of Stone & Chalk and representative of the Australian Innovation Collective told the committee:
[T]he support that JobKeeper did provide for those that did meet the criteria, both from a business and individual perspective, was a lifesaver. I think we would have had mass collapse, to be completely honest, of the entire sector nationally if JobKeeper hadn't been amended to that second version.
7.50
It was noted that FinTechs and RegTechs were still unable to access JobKeeper in some circumstances, namely: pre-revenue startups; and those utilising contractors, employees on short-term specialised visas or casual staff. Mr Scandurra commented:
Perhaps the two biggest issues that JobKeeper didn't support—pre‑revenue startups and companies that themselves were spending potentially considerable amounts of money. If you imagine some of the deeper tech versions of fintech and regtech and other startups more broadly, they tend to be capital intense, they rely heavily on RDTI, they rely heavily on upfront seed investment, and yet they were completely ignored in the entire JobKeeper policy. Likewise…in early stage businesses it's quite common that they—whether we call them casuals, whether we call them freelancers, whether we call them contractors, for example—typically supply the vast majority of the workforce for these types of companies, even well into the scale-up phase. It's also quite typical for these resources to come in and out for durations of less than 12 months. That was the second major hole that JobKeeper didn't provide for in terms of protecting and supporting startups in particular here in Australia and, to a lesser extent, scale-ups that had that kind of temporary workforce.
7.51
FinTech Australia raised several issues that may still arise for FinTechs in relation to eligibility for the JobKeeper scheme:
Eligibility regarding JobKeeper is also an issue for startups that utilise contractors, employees on specialised visas or casual workers, as they are typically engaged on an as needed basis, often for less than 12 months. Receiving JobKeeper payments for contractors, visa and casual workers who would otherwise be ineligible for the JobKeeper scheme would allow the business to continue operating, and would keep those workers employed.
7.52
Ms Rebecca Schot-Guppy, Chief Executive Officer of FinTech Australia, commented:
Broadly, I would like to congratulate the government on the scheme. It's been very successful for many of our members. The additional tests that were released, in relation to high growth, irregular turnover and for businesses that weren't around 12 months before, allowed many of our members to access it.
…
On the whole, we're very supportive of JobKeeper and I think it provided 95 per cent of the industry with support. There are obvious failures, in relation to pre-revenue companies. I would say all our pre-revenue members missed out on any support, but we understand the government's logic in only supporting businesses that have products in the market.
Lifelong learning
7.53
The committee heard that enabling workers to retrain, reskill and upskill will be critical to Australia’s general economic performance in the coming years, and specifically will be required to ensure that the Australian workforce can service growing needs in areas of emerging technology.
7.54
Stone & Chalk noted a recent report which found that 56 per cent of all Australian workers are in roles projected to be impacted by automation and augmentation over the next 15 years. It argued that Australian industry is ‘at a critical point where the government can lead the way for lifelong learning at every stage of the skills value chain’ and ‘provide the impetus for the take up of emerging technologies which will ensure the Australian economy remains competitive’.
7.55
Stone & Chalk recommended the establishment of an ‘enduring, transferrable and universal lifelong skills framework that points to employability applied through the entire education system that reflects continuous industry demands’, as well as the development of programs to address skills gaps within emerging technology startups and scaleups.
7.56
The Business Council of Australia (BCA) put forward a proposal for a Lifelong Skills Account, which would provide opportunities for individuals to retrain and reskill throughout their careers by updating their training through 'microcredential qualifications'.
7.57
Mr Simon Pryor, Executive Director of Policy for the BCA, explained the idea of microcredential qualifications:
One example we've got is where you're a data analyst looking to get into a fintech. You could do a short course on blockchain. That won't take you two or three years to do. It's a quick course designed to meet your needs and the industry's needs, and you can draw upon a lifelong learning account to pay for some, or all, of that course. Some of it might also be paid for through a HECS scheme. These are decisions that would be made around each course.
7.58
Mr Pryor also highlighted the benefits of the Lifelong Skills Account idea could bring to the FinTech sector:
[I]t would provide a skilled workforce to meet the needs of fintechs and other businesses. They would quickly be able to get access to the workers they need, because the workers would have been able to do the microcredential course to then bring those skills to jobs that are changing rapidly and where the skills needs are changing rapidly.
We did some work a year or two ago that showed that some jobs might be replaced over time through technological disruption but overwhelmingly it's the tasks within the jobs that are going to change. These microcredential courses allow you to provide the skills to meet the needs of the ever-changing tasks within the jobs.
Clarity around Fringe Benefits Tax and retraining
7.59
Ernst & Young (EY) recommended that the ATO review its current position that retraining provided or paid for by employers for terminating employees is subject to the Fringe Benefit Tax (FBT).
7.60
EY informed the committee that an ATO private ruling stated that while outplacement assistance services (such as external career information sessions or assistance with CV writing) are FBT exempt, any actual attempt to retrain or upskill the employee is subject to FBT.
7.61
EY provided an example of how this position would impact employers:
For example, an employer, as a result of technology advancements, might make an employee redundant but wish to invest in that employee's future employment or business prospects by retraining activities as well as outplacement advice. The ATO view is that outplacement assistance services are FBT exempt, but any actual attempt to retrain or upskill the employee would be subject to FBT under the law.
7.62
It further observed:
The FBT cost makes these activities economically prohibitive as it effectively doubles the cost for employers wanting to arrange such retraining programs. We say that ATO view is an incongruous tax policy position at a time of economic disruption and such a program should be free of FBT.
7.63
EY argued that Australians would better accept disruptive technology advancements if employers were encouraged to assist in retraining employees being terminated. It reiterated that the tax system should encourage such retraining, and that the current settings 'massively' discouraged such economy wide positive behaviour by doubling the cost to employers.